Expanding internationally is exciting and rewarding but it comes with challenges. Most businesses that come to Australia are successful but a few are not. If you’re expanding into Australia, or to any foreign country, laying strong foundations early gives you the best chance of success.
How to prepare for expanding into Australia
Based on my experience as outsourced CFO to foreign-owned startups, here are eight ways you can prepare for a successful start to your Australian business operations.
1. Research the market
When scaling internationally, businesses need to make a realistic assessment of the demand for their product. If you have an online channel, this process is much easier. In any case, you’ll need to understand the positioning of your product in Australia, market trends, your competitors and potential threats in your industry. A detailed market study is advisable.
Getting good advice from quality people in-country is a good way to fill your knowledge gaps. Professionals and non-competitive business owners in Australia can provide valuable insights into market forces, cultural nuances, sales cycle differences and more. If your local advisors are familiar with both your business culture and Australia’s, they will know which differences to highlight.
2. Select the right people
Local people and partners are essential. Sending your own employees to Australia rather than sourcing fresh local talent may be cost-effective in the short-term due to lower labour costs, but there can be long-term drawbacks. Lack of Australian market knowledge and inability to build the relationships you need for success in Australia can lead to costly mistakes.
When recruiting senior management staff, proper background checks and clear, tax-effective contracts are essential. Remuneration should contain a mix of incentives directed towards both sales and profit.
3. Build trust through the supply chain and distribution channel
If you spend time developing rapport and trust with suppliers and customers before you start trading in Australia, then you’ll have established partner relationships that are aligned and incentivised to help you when you do start trading. These relationships could help to avoid inefficiencies along your supply chain distribution channels in the early stages of your business.
4. Understand how much capital is needed to be successful
Before expanding into Australia, you’ll need to ensure that your investors have adequate capital for an Australian startup. Once you go to market, new problems may emerge that you won’t have considered so it’s vital your financial foundations are in order. It’s also important to choose the most suitable type of funding in the form of debt or equity because underlying tax consequences flow from this.
If your Australian entity receives loans from the parent or investors, the loan interest charged needs to be commercial to ensure it is tax deductible. In addition, any equity needs to be correctly reported in the local Australian accounts and match the treatment by the parent company.
5. Choose the correct business structure
Choosing the right business structure at the outset has major commercial and tax advantages. The structure that will be best for your Australian operations will depend on your business model, intended activities and growth plans. For example, what is the mix of your employees and contractors? Will the parent company act as the importer and clear the goods? Will the business tender for projects in Australia?
You should also consider the local taxation, superannuation and international taxation obligations that will apply, as different business structures mean different obligations. If you get your structure wrong, switching can be disruptive and expensive with lost GST credits, extra administration, potential tax burdens, time delays and lost opportunities.
6. Customise your accounting systems
It’s advisable to choose an accounting system that can grow with the Australian business and set it up from the beginning to allow for adequate tracking of financial performance in the future. Systems such as XERO, NetSuite or SAP can be tailored to achieve this.
Customising your accounting systems to meet both local and parent company reporting requirements and eliminating as much manual processing as possible will help you achieve reporting deadlines with maximim cost-effectiveness. Similarly, payroll and HR systems need to be easy to manage in the face of rapidly increasing staff numbers or high staff turnover in the initial growth phase.
7. Embrace communication and financial monitoring tools
The daily realities of having internationally distributed teams mean you need smart, cloud-based work flow and communication tools that let you collaborate across borders effectively and transparently. There should also be a proper communication and monitoring system in place so that the parent and local entities can set and meet achievable objectives.
8. Invest early in good governance and tax compliance
One of the biggest international expansion challenges is staying compliant. Companies need to understand the Australian Taxation Office’s (ATO) monthly and quarterly deadlines and thresholds for reporting and payment of taxes. Having an Australian tax agent to assist with these lodgements will give you a one-month extension for tax payments and minimise the cash flow impact.
An up-to-date transfer pricing manual is also essential for foreign-owned businesses since Australia introduced multinational anti-tax avoidance measures. This is a focus of Australian Tax Office audit activity and there are substantial penalties for getting it wrong.
Accru Felsers has been advising international companies in Australia for seven decades. As accountants, auditors and tax advisers, perhaps our best advice is that it is worth investing in good governance and tax compliance early. You do not want legal and compliance issues to slow you down at a later stage when you want to be accelerating and taking advantage of opportunities.